Forex intervention: An exercise in futility as naira continues slide

By Odunewu Segun

With over $768 million injected into the forex market last week, the black market rate remained at N406/$1 suggesting that the effect of the CBN’s intervention has climaxed. The panic that hit the black market has waned and demand is gradually outpacing supply.

Whilst demand in the retail end of the market has been largely met, it appears demand for restricted items, such as those on the 41 banned list, continues to pile pressure on the black market. It is also understood that demand also considered as legitimate, still relies on the black market to meet some of its urgent FX requirements.

National Daily gathered that the naira fell to N328.50 on the official market on Monday with only $80,000 traded. The Central Bank in apparent response issued a press release, assuring the market that it will continue to cater for the retail market while and will auction $100 million to be settled between one week and 30 days, as against sixty-day contracts it had written previously.

Critics of the CBN believe the latest move by the CBN will only result in modest gains at the most and is not the solution to the currency crisis. They believe that the CBN will need to remove all forex restrictions, reintroduce a managed float, and allow owners of FX determine what they want to do with the forex they earn.

Currently, all FX proceeds from IOCs, export proceeds etc. must be sold to the CBN at the official rate. This creates a monopoly that allows the CBN to determine price arbitrarily making it difficult for other legitimate sources of inflow to import forex into Nigeria.

ALSO SEE: Naira collapses further as CBN shortens FX settlement period

According to CBN spokesman, Isaac Okorafor, CBN intervened by offering the sum of $100 million to authorized dealers at the forex auction in the interbank wholesale window on Monday, April 10.

The Bank also sold $10,000 each to BDCs to meet the needs of low-end users in the country.

The spokesman said that the dealers in the wholesale segment will have value for their respective bids on Tuesday, April 11, 2017.
According to Okorafor, the sum of $99,544,417.45 was picked up by dealers out of the $100 million offered by the Bank during the last wholesale auction on April 6, 2017.

Meanwhile, operators in the Bureau De Change (BDC) segment have duly funded their accounts with the CBN in anticipation of picking up the dollar equivalent ($10,000) on Tuesday.

The CBN may continue its special intervention in the market with the sale of more dollars to BDCs and in both the retail and wholesale windows in the course of the week.